Editorial: BHP blows US$800M on failed transactions

BHP Billiton formally withdrew its hostile, US$40-billion cash offer for Potash Corp. of Saskatchewan on Monday after the Canadian government had rejected it two weeks earlier on the grounds that it did not provide a “net benefit” to Canadians, heeding the loud protestations of Saskatchewan Premier Brad Wall and a groundswell of opposition in the province.

Of paramount concern to the provincial government was BHP Billiton’s indifference to the long-established Canpotex export-sales cartel, and the company’s willingness to drive down potash prices as it maximized mine output.

The federal government had left open for BHP a 30-day window to improve its bid, but that was just a formality, as BHP had already made many substantive concessions relating to increased taxes, vows to maintain employment levels, and commitments to remain in Canpotex for five years, and to centre its potash business in Saskatchewan.

Clearly, BHP Billiton execs spent too much time with their noses in their spreadsheets and were unable to grasp the enduring strength of Prairie populism in Canada. And BHP paid a full price for its lesson, tallying US$350 million in transaction costs for the failed bid, of which US$250 million will be recognized in the half year ending Dec. 31.

Providing some support to BHP’s share price was a simultaneous announcement that the company would resume its suspended, US$13-billion share-buyback program, having US$4.2 billion left to spend.

Will this also end Marius Kloppers’ three-year reign as BHP Billiton’s CEO?

Kloppers already failed with two huge deals: the audacious bid to buy Rio Tinto in his rookie year, which fizzled at the onset of the global recession; and the plan to combine BHP and Rio’s iron ore assets in Western Australia, which was blocked by European regulators on competition grounds.

BHP has now spent an astounding US$800 million on those three failed ideas.

Following BHP’s annual meeting this week in Perth, Australia, chairman Jac Nasser defended Kloppers in front of gathered journalists, and argued that the failed M&A decisions were the responsibility of the entire board.

The Sydney Morning Herald reported that, while no one questioned Kloppers’ performance during the annual meeting, Kloppers “appeared nervous as he addressed shareholders and stumbled over his words.”

But BHP remains deeply involved in the fertilizer business in Canada, with its enormous, $12-billion Jansen greenfield potash project in Saskatchewan awaiting development.

The company’s measured tone and self-discipline throughout the PotashCorp bid bodes well for a good relationship with folks in Saskatchewan going forward.